I once had an in-depth discussion with my accountant about how many investors want to do their own tax returns for their investment properties.

In my opinion, this is potentially very costly and time consuming and I want to share with you my top reasons why.

1) You aren’t a tax expert

Taxation and accounting can be a very complex issue. Accountants spend thousands of dollars and train for years to learn their skills. They also pay for ongoing education that helps keep them informed on the latest tax code changes.

In comparison, the average investor has read a book or two on tax planning, and somehow they think they know how to do everything. The truth is they are nowhere near qualified to be a tax expert and they shouldn’t try to be.

Instead, investors should take the following 3-step approach…

Hire a skilled accountant to handle the taxation aspects of their investing business

Learn enough about taxes and accounting so they can understand what their accountant is doing and read financial reports

Focus on what they do best – buying more property, and managing existing investments more profitably

2) Software programs aren’t enough

It amazes me that many people think that all they need to file a tax return is some inexpensive tax software.

Those software packages work great for people who have a regular job and perhaps a few stock or mutual fund investments, mainly because their tax returns are relatively simple and straightforward.

However, when you own investment property or own a business of any kind, the complexity goes up dramatically. There are all sorts of deductions available to you, with some of them being simple and others being a much more complex.

In addition, what all software lacks is information specific to your particular situation.

For example:

Are you planning on selling a property in a few years? An accountant can help you plan ahead of time.

Are you going to earn a lot of income this year, but not much next year? An accountant can help smooth out and reduce the taxes paid across both years.

Software can’t do that.

3) Tax guides are not tax law

Most people think that just because they read something published on the CRA website in a tax guide, that it must be 100% true.

In fact, many investors treat CRA guides as ‘gospel’, assuming if they follow everything all the rules outline, everything will be okay and they will pay the least tax.

Unfortunately, that’s just not the case.

CRA tax guides and interpretation bulletins are a good learning resource, but you shouldn’t assume you’re a tax expert just because you’ve read a few of their publications.

Even though CRA does its best to explain what the laws are truly saying, if there’s ever any doubt, the law will always prevail.

Who decides what the law is trying to say? A judge in the tax court.

Which leads me to the next reason…

4) Tax court can ‘change’ the law

This is a big one that virtually no one talks about.

If there is ever a disagreement between CRA and a taxpayer over something the taxpayer thinks should be allowed (e.g. a deduction), the taxpayer can bring the issue before the Tax Court of Canada.

In Tax Court, a judge hears both sides of the issue – both from CRA representatives and the taxpayer. At that point, the judge makes a decision.

The results of those decisions are published on the Tax Court website, and good accountants will keep up-to-date on the latest judgements so they can correctly advise their clients.

An investor who tries to do their own tax planning and tax returns will likely never know (until it’s too late) that a recent court case has ‘changed the rules’ for their particular situation.

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5) Do-It-Yourself is Expensive

My accountant told me the story of one client of his who owned many rental properties, and he had been doing his own tax returns for the last 5 years.

When my accountant looked at his returns, he realized that his client had made a big mistake. He had forgotten HALF of his property expenses, which caused him to pay MORE taxes for each and every year he owned his properties.

Fortunately his client was able to go back and adjust the previous tax returns, but if he had never hired an accountant to help him with his taxes, he may have never known.

He might have continued overpaying by thousands of dollars for many years, on both existing properties and new purchases… all because he thought he knew how to prepare his tax return.

If you don’t yet use an accountant for tax planning and to prepare your tax returns for your investment properties, I highly recommend you reconsider.

The cost is insignificant compared to the savings you’ll receive, along with the peace of mind knowing that your tax returns are being done properly and you’re maximizing your tax savings.

Do you do your own taxes?
Or do you use an Accountant?

Paul is an entrepreneur, investor, speaker, educator and publisher. He is founder and editor at Spirepoint Wealth, a financial education company dedicated to helping people improve their finances, create more cash flow and build long-term wealth.

Love all of this information. My accountant has saved me thousands of dollars, and if working on a tax issue as I speak. Like a good lawyer, you need a better accountant if your a true entrepreneur. Paul is an expert on RRSP investments use him and buy his courses, why mess around learn from the best.

You don’t need an accountant because someone forgot expenses. Sounds more like this person is un-organized. I agree that some professional advice is valuable when your are disposing of real estate. But otuer than that it’s pretty basic income minus expenses and some Depreciaton thrown in for good measure.

Actually, his client was quite organized. When I wrote “He had forgotten HALF of his property expenses” that was my plain English way of saying what this person actually did… which was actually incorrectly claim a personal portion on the expenses for all his properties.

In essence, he was ‘forgetting’ to claim half his expenses, as somehow he thought there was a personal element for each one.

I disagree with you that taxes for real estate are ‘pretty basic’ (and this is coming from a guy who used to do it himself when he just rented rooms in his home).

Just take a read through CRA’s T4036 Rental Income guide. If it was simple, they wouldn’t need 30 pages to explain “income minus expenses”. And that’s assuming you are not incorporated. If you are, it gets even more complex. Plus there’s the T776 Statement of Real Estate Rentals to fill out (that’s the one that my accountant’s client filled out incorrectly). Layer on top of all that depreciation (not always good to claim), tax court cases, etc., and it’s anything but basic.

Don’t get me wrong… I’m not against learning about taxes, tax savings, planning, etc., and even questioning recommendations from your accountant from time to time. I think it’s extremely important as an investor and business owner.

But when it comes to tax return preparation and planning, you absolutely should use an accountant. Otherwise, you’re just wasting time, energy, and potentially money (plus penalties) instead of focusing on building your investments and your business.